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BEIJING: China's state-owned CNOOC said yesterday that it is delighted that the Canadian Ministry of Industry has approved its $15.1 billion proposed takeover of Canadian oil and gas producer Nexen.
Once finalized, it will be China's largest overseas energy acquisition, coming at a time when other Chinese companies such as Huawei encounter difficulties in expanding in North America.
Wang Yilin, chairman of China National Offshore Oil Co., said the approval is recognition of the acquisition's long-term economic benefits for Calgary, Alberta and Canada.
Nexen is headquartered in Calgary in Canada's Alberta province and is to remain there after CNOOC's takeover. "I express my appreciation for Canada's welcome of our investment," Wang said in a statement yesterday.
CNOOC Chief Executive Officer Li Fanrong said the takeover will bring opportunities for Nexen employees, partners and CNOOC. "We are delighted that the Ministry of Industry has concluded that this transaction represents a 'net benefit' to Canada," he said.
China's Ministry of Commerce could not be reached for comment yesterday.
Despite the approval, the Canadian government said it will reject any future takeovers in the oil sands sector by foreign state-owned companies unless there are exceptional circumstances. "To be blunt, Canadians have not spent years reducing ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead," Canadian Prime Minister Stephen Harper said.
In 2005, US lawmakers blocked a CNOOC $18.5 billion bid to buy the oil company Unocal over national security concerns.
Harper's Conservative government has been studying whether CNOOC's deal and a smaller foreign takeover, Malaysian state-owned oil firm Petronas' $5.2 billion bid for Progress Energy, represent a "net benefit" to the country. The Harper government also approved the Petronas deal on Friday.
Concerns had been raised that approvals could lead to a flood of deals that put control of Canada's vast energy resources in Chinese hands, but Harper said the approvals should be seen as the end of a trend and not the beginning. He said no other industrialized country would allow a major sector of its economy to be taken over by state-owned companies from another country.
The prime minister noted that 15 companies dominate production in the Alberta oil sands and said the sector represents 60 percent of all the oil production around the world that is not already in state hands. He feared a few larger purchases by foreign state-owned companies could rapidly transform the industry from one that is essentially a free market industry to one that is effectively under the control of a foreign government.
Canada's new position may not go over well in China where they are eager for an even greater share of Canada's oil. Alberta has the world's third-largest oil reserves after Saudi Arabia and Venezuela: More than 170 billion barrels. Daily production of 1.5 million barrels from the oil sands is expected to increase to 3.7 million in 2025.
CNOOC and other big state-owned Asian energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel their economies. Chinese companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by US lawmakers who cited national security fears.
Harper's government originally turned down Petronas' bid for Progress Energy in October. The government did not publicly explain the decision to block the deal but said a new policy framework for foreign takeovers would be released soon. Petronas was allowed to reapply.
The decision to turn it down in October raised doubts about whether Canada is open to foreign investment.
Harper's Conservative government also rejected Anglo-Australian BHP Billiton's hostile takeover bid for Potash Corp. in 2010 and the sale of Vancouver-based MacDonald, Dettwiler and Associates' space-technology division to an American company in 2008.
But Harper has lobbied the Chinese to invest in Canada's energy sector and has said billions in foreign investment is needed to develop Canada's vast oil and gas deposits. Turning down CNOOC's bid would have harmed relations with China.
Harper said the Nexen transaction by itself did not raise fears. Most analysts believed the deal would be approved because more than 70 percent of Nexen's assets are outside Canada. Analysts say a company like Suncor, Canada's largest oil company, would have been off limits.
Nexen, a mid-tier energy company in Canada, operates in western Canada, the Gulf of Mexico, North Sea, Africa and the Middle East, with its biggest reserves in the Canadian oil sands. It produced an average of 213,000 barrels of oil a day in the second quarter of this year. The acquisition vastly expands CNOOC's holdings in Canada, where the company has already invested about $2.8 billion. Chinese state-owned company has invested billions in Canadian energy in recent years.
Nexen's board approved the takeover in July after CNOOC offered a 62 percent premium on the stock price. Shareholders voted overwhelmingly to support the deal in September. The deal still needs approval in Britain and the US where Nexen also has assets.
The stock has long traded at 10 percent discount to the offer on fears Canada would not approve the takeover. The stock jumped 15 percent, or $3.43 to $26.95, in afterhours trading in New York after closing down 6.5 percent in the regular session after the government said an announcement would be made after the close. Progress also traded down 5.4 percent in the regular session on fears Canada wouldn't approve that deal.
In an apparent show of commitment to Canada's interests, CNOOC is pledging to set up a regional headquarters in Calgary, Alberta, where Nexen is based. It also says it will keep the Canadian company's management and projects in place and list shares on the Canadian bourse in Toronto.
Petronas has also made a series of promises in the proposed takeover of Progress.
John Manley, president of the Canadian Council of Chief Executives, applauded the decisions to approve the deals, noting Canada needs foreign capital. "The decision to approve the acquisitions of Nexen Inc. and Progress Energy Resources Corp. sends a positive signal to investors in Canada and around the world," Manley said.
First Asset Investment Management Analyst John Stephenson said foreign state-owned companies will continue to grab minority stakes in Canada's oil sector.